Turning from EU, US to China to lift growth
By Stella Dawson and Nick Edwards Tuesday, May 8, 2012, 11:45 am TWN
Reuters -- With the United States struggling through a soft patch and Europe battling recession, China may come to the rescue by demonstrating a resilience that would provide comfort in a sea of economic uncertainty.
China, the world's second largest economy, is looking ever more vital to maintaining global economic momentum, and a raft of data to be released this week is expected to provide fresh evidence that its economy bottomed in the first quarter and is starting a gradual turn upwards.
China posted its weakest growth in nearly three years in the first quarter, with gross domestic product expanding 8.1 percent. The slowdown in growth coincided with deteriorating economies in the eurozone and the United States, China's two largest trading partners.
That combination stoked concern that China, too, could weaken, frustrating a shift away from export-driven growth toward domestic consumption, which economists view as essential to putting the global economy back on a solid growth path.
China's growth has from China is even more important after mixed data from the United States in recent weeks, highlighted by a disappointing jobs report for April. Job growth slowed to 115,000, the third straight month of deceleration.
In Europe, business activity took a turn for the worse last month and the elections in France and Greece and Spain's struggles to resolve its banking problems have driven up political uncertainty over the direction of the eurozone.
In contrast, manufacturing data for China perked up in April, suggesting China's slowdown could be easing.
Justin Lin, chief economist of the World Bank, remains confident Beijing can engineer a soft landing thanks to a high level of technology investment, which should raise labor productivity, lift incomes and shift growth toward consumption.
"I think China can maintain 8 percent growth," Lin said on Friday.
The view is widely shared by investment bank economists. "We believe China's economy is showing modest signs of recovery," said Standard Chartered in a client note.
Kenneth Rogoff, an economics professor at Harvard University, is more cautious, saying that China relies excessively on investment to drive growth.
Investment constitutes almost half of China's GDP, twice the global average, driven by huge intervention in the financial system, which lowers borrowing costs while depressing returns for savers, Rogoff said in a paper on the Project Syndicate website.
Fixed asset investment has underpinned China's economy as export growth has wilted, though government action to crimp the speculative real estate bubble it has fueled is beginning to bite. As a result, April data is likely to show a further easing of activity when the numbers are published on Friday.
MOST POPULAR OF THIS SECTION